Improving Your Credit Rating
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Establishing a good credit history has never been as important as it
is today. The rewards of raising your score speak directly to your wallet:
You'll qualify for more loans and be offered better interest rates.
Your credit score is constantly changing as your credit report information
is always changing. It reflects payment patterns with greater emphasis
on recent activity. By paying bills on time, keeping balances low, particularly
in relation to revolving accounts, and only applying for and opening new
accounts as needed, you can improve your score over time. |
Raising your score is just like shedding those extra pounds: It requires time
and patience as well as good discipline. The best approach to improving your
credit is to manage it responsibly over time.
The best way to improve your credit rating is to make timely payments. However,
even if you pay your bills on time, you credit score may not be as high as you
wish. That's because credit scores are calculated by considering various factors
of financial activities. About 35 percent of your FICO score is based on your
payment history, 30 percent on the amounts owed, 15 percent on the length of
your credit history, 10 percent around new credit and 10 percent based on the
types of credit in use.
Typical reasons for low credit scores
TransUnion lists the following as the top factors that make your score lower:
- There are too many consumer finance company accounts on your credit report.
- Your account balances are too high.
- There is not enough recent revolving account information on your credit
report.
- Your loan balances are too high in comparison with your loan amounts.
Improvements in any of these areas should help increase this consumer's credit
score.
Make sure your credit report contains
accurate information.
Many of the disparities in scores are caused by omissions of key credit account
information and errors in repository files.
By making sure that only your accurate credit history appears on your report,
you ensure that the credit score it generates isn't lowered by inaccurate information.
Somebody else’s information could be mixed in with your report, either
through a credit bureau mistake or because of identity theft. (clik for ocommon
errors in your credit report)
Here what you should do
Check credit score and review reason
codes.
- Review credit score analysis report
Y ou'll get specific recommendations on what steps you can take to improve
your FICO score over time
- Check reason codes
- Use simulator
The score simulator lets you see the impact of certain actions -- such as
paying off all your debts or missing a payment -- might have on your credit
report.
Reduce debt
- Pay off credit card bills
The fastest route to a better score is paying down balances on credit cards
- Change lifestyle - stop charging
- reduce debt-to-income ratio
- Prioritize debt
Develop and maintain strong financial discipline
It’s essential that you pay all your bills on time, all the time.
- Pay bills on time
When you are delayed or delinquent in a payment, late fees are charged, more
interest accrues and your credit health is negatively affected. Contact your
card issuer immediately if you were unable to pay your bills on time.
- Keep balancess low
Keep your debts reasonable. Financial experts say that, as a rule, non-mortgage
debt payments should not exceed 10 to 15 percent of your take-home pay each
month. If your debts are higher than that, try to reduce them before applying
for another loan.
- Carefully examine credit card bills every month
Contact your card issuer immediately if you have found an error in a bill.
Be sure to make any complaints, and get corrections, in writing.
- Avoid unnecessary inquiries
Any time you authorize a creditor or other business to check your
credit report, an inquiry is added to your report. If you have a large number
of inquiries in a short amount of time, creditors may infer that you are either
applying for too much credit because of financial difficulties or taking on
more debt than you can repay.
- Pay off credit cards
- Take Care of Collection Accounts
- Keep your credit cards - but manage them responsibly.
In general, having credit cards and installment loans that you pay on time
will raise your score. Someone who has no credit cards tends to have a lower
score than someone who has managed credit cards responsibly.
Monitor credit report
Checking your credit report on a regular basis allows you to stay on top of
what credit grantors will read about you when they check your credit history,
and enables you to correct any inaccuracies and catch fraud before these problems
impact your loan.
Somebody else’s information could be mixed in with your report, either
through a credit bureau mistake or because of identity theft.
- Make sure positive information gets reported
- Detect identity signs early
- Protect personal information
Common mistakes
- Closing unused accounts without paying down your debt to improve your score
More Tips
- Pay off debt rather than moving it around.
- Transfer balances from a card that's close to being maxed out to other cards
to even out your usage.
- Don't open multiple accounts too quickly, especially if you have a short
credit history.
- Shop for a loan within a focused period of time.
FICO scores distinguish between a search for a single loan and a search for
many new credit lines, based in part on the length of time over which recent
requests for credit occur.
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